Partnership Deed and How It Can Protect Your Interests

Before you invest your savings towards a joint business venture, it is advised that you opt for a partnership deed document that can protect your interests in the time of any internal conflicts. Read more to know about the benefits of the partnership deed and its contents. 

It is tough to be a master of all trades. It is a known fact that when different people have different capabilities, and when they come together the task at hand seems more manageable, and the organization, in general, is improved. 

However, running a business is hard. Keeping up with all the departments like production, finance, marketing, etc., is complicated and requires continuous efforts. That's one of the primary reasons why entrepreneurs forming a strategic partnership is considered the second most effective way to run a business in any country. Ever since time immemorial, merchants and traders have partnered up with a capable counterpart to run their business. However, the thought of putting all your efforts into running a business that your partner at any moment could exploit could be pretty frightening. Hence, the legal practice of signing a partnership deed is considered essential before embarking on any new project together. 

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What is a Partnership Deed?

To define a partnership deed, let's understand what partnership means in legal terms. Section 4 of The Partnership Act, 1932 states that "Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all." 

A partnership deed is a legal document written when two individuals come together and decide to run a business, regardless of the profits or losses incurred. This official document helps ensure that both parties, over time, do not end up in some misunderstanding, conflict, or harassment. Also known as Partnership Agreement, Partnership Deed is registered under the Indian Registration Act, 1908, so that there's no risk of it being destroyed under the care of any specific individual. Anytime both the partners wish to change the terms of the agreement of the partnership deed, they can do so. If the partnership firm somehow ends up in a courtroom, a partnership deed serves as a legal document that can influence the final decision served. 

Even though it is not necessary to sign a partnership deed before starting a business, it is highly recommended by law to protect your interest and assets. 

What are some of the steps of drafting the partnership deed?

Draft agreement - The partners must select an agreement that includes all of the firm's pertinent facts and partners.

Obtaining E-stamp paper — purchase the required amount of e-stamp paper and have the deed printed on it.

Sign the deed by getting all of the partners' signatures on all of the pages of the act, recognising the norms and restrictions.

Whether the deed is attested by a notary or registered, it is up to the partners to decide whether they want the deed attested by a notary or registered.

Features of a partnership deed

What Are the Contents of a Partnership Deed? The following are some of the most important partnership deed features:

• Name and address of the partnership and its co-owners — the partnership deed specifies the name under which the business will operate in the future.
• Content of Partnership deed - The partnership deed includes all partners' names and current addresses in addition to the owners' names and addresses.
• Nature of the business - the deed specifies the type of business that will be conducted.
• The location of all offices, as well as the head office, shall be listed in the partnership deed.
• Opening date and location - the time and location of the business's opening must be clearly stated.
• The duration of the partnership, whether for a definite period or a project, is also included in the deed.
• Owners' capital contributions — the agreement should specify how much money each owner has contributed.
• Profit-sharing ratio — it must state the proportion of earnings received by partners.
• Audit Details - Details of the audit procedure are also included in the cooperation agreement. (The partnership agreement format is easily available on the internet).
• Admission, retirement, or death of partners - the regulations govern the admission, resignation, or death of any partner in the firm in the deed.
• The rights and responsibilities of the partners — the partnership deed outlines all of the partners' rights as well as their specific responsibilities.
• Settlement of accounts - if the firm dissolves, the partnership agreement also contains the settlement of accounts.

Features And Benefits That Explain Partnership Deed

Here are some distinctive features of a partnership deed that you should know:

1. Partnership businesses must have at least two members. The rights, responsibilities, and liabilities of each partner must be mentioned in the registered partnership deed to avoid litigation in the case of future disputes.
2. Partners must come to a mutual decision before starting the firm. The ratio of the distribution of profit and loss incurred by the organization must be mentioned in the partnership deed to simplify the financial process. 
3. There's no minimum and maximum limit on the capital invested by each partner of the firm. A partnership deed keeps a check on the salary, commission, and interest rate on the capital earned by each partner.

Making partnerships a piece of cake: Understanding the importance of a partnership deed

Starting a business with partners is an exciting venture, but without a proper partnership deed, it could quickly turn into a recipe for disaster. A partnership deed is a written agreement that outlines the terms and conditions of the partnership, including the rights and responsibilities of each partner. It's an essential tool for avoiding misunderstandings and settling disputes down the road.

The must-have ingredients of a mouth-watering partnership deed

Just like a cake recipe, a partnership deed has specific benefits of partnership deed that are critical to the success of the partnership. These ingredients include:

• Names and addresses of the partners
• Nature of the business
• Percentage of profit/loss sharing
• Roles and responsibilities of each partner
• Capital contribution of each partner
• Procedure for admission of new partners
• Dissolution of the partnership
• Dispute resolution procedures

What are the characteristics of partnership deed?

A well-crafted partnership deed should also include provisions for profit sharing, decision-making processes, and dispute resolution. It's crucial to carefully consider the features of partnership deed to ensure a smooth partnership. Here are some key aspects to consider when drafting a partnership deed:

1. Profit Sharing: The partnership deed should clearly specify how profits and losses will be shared between partners. This could be based on a pre-agreed percentage or on the amount of capital each partner has invested in the business.
2. Decision-Making Processes: The partnership deed should outline how decisions will be made in the business. This could include a simple majority vote or a more complex decision-making process that involves all partners.
3. Dispute Resolution: Disputes are inevitable in any business partnership. A partnership deed should include provisions for how disputes will be resolved in a fair and efficient manner. This could involve mediation, arbitration, or even legal proceedings.
4. Duration of Partnership: The partnership deed should specify the duration of the partnership. This could be an open-ended arrangement or a fixed-term partnership with a specific end date.
5. Roles and Responsibilities: The partnership deed should outline the roles and responsibilities of each partner. This could include specific tasks or responsibilities that each partner has agreed to undertake.
6. Termination of Partnership: The partnership deed should specify the circumstances under which the partnership can be terminated, and what will happen to the business assets and liabilities in the event of termination.

NoBroker's home loan services can help provide the necessary funding for your business venture. To learn more about partnership deeds and their contents, get in touch with NoBroker's legal experts for a free consultation.

What are the top considerations when starting a project on partnership deed

When embarking on a new business partnership, it's essential to take the time to "project on partnership deed." A well-thought-out partnership deed can help ensure the success of the partnership and minimize the risk of conflict. Here are the top considerations to keep in mind when "projecting on partnership deed" and starting a new business partnership:

1. Define the Business Purpose: Clearly define the purpose of the partnership, including the products and services to be offered and the target market. This will help both partners understand their roles and responsibilities and ensure everyone is on the same page.
2. Distribution of Profits and Losses: Decide how profits and losses will be distributed among the partners. This can include a profit-sharing agreement, a salary for each partner, or a combination of both.
3. Decision-Making Authority: Determine who has the final say in important business decisions. This could be one partner, a majority vote among partners, or a specific decision-making process agreed upon by all partners.
4. Duration of the Partnership: Specify the length of the partnership. This can be an indefinite partnership or a partnership with a set end date.
5. Dispute Resolution: Establish a process for resolving disputes between partners. This can include mediation, arbitration, or legal action.
6. Partnership Termination: Define the circumstances under which the partnership can be terminated, such as the death or resignation of a partner, or a disagreement between partners.
7. Capital Contributions: Specify the amount of capital each partner will contribute to the partnership and the conditions under which additional capital can be contributed.
8. Partner Responsibilities: Clearly outline the responsibilities of each partner, including the tasks they will be responsible for and the amount of time they will spend on the partnership.
9. Record Keeping: Establish a system for keeping records of the partnership's finances, including receipts, invoices, and bank statements.

Regular Review: Schedule regular reviews of the partnership deed to ensure that it still meets the needs of the partnership and to make any necessary changes.

Documents Required to Form a Partnership 

It is mandatory to have two or more willing individuals form a partnership. The Partnership Act, 1932, regulates all partnership registrations. Documents required to form a partnership -

• PAN Card of all the partners
• Address proof of all the partners like Aadhar Card, Voter ID, Driving Licence, etc.
• PAN of the firm
• Address proof of the firm

An official authority must sign the documents required to register a partnership deed between two partners. 

Procedure To Register a Partnership Firm in India

Indian Partnership Act, 1932 is the official Act according to which partnerships are governed. It is entirely up to partners to decide if they want to get their firm registered or not. If they do not register, they won't be allowed the benefits of a registered partnership firm. The registration process can happen anytime from the start of the business. However, your firm must be registered by law if a legal dispute before the court case is filed. 

For registration of a partnership firm, submit an application and prescribed fees to the Registrar of Firms of the respective state in which the business is operable. You must also include the following documents - 

1. Registration of Partnership Application in Form No. 1
2. Affidavit duly filled and signed
3. The original copy of the partnership deed
4. Ownership proof of the business space or the rental/lease agreement

All partners must sign the submitted application. After checking the contents of the partnership deed that explain the intention of the business firm, the Registrar of Firms will record an entry in the Register of Firms and issue the Certificate of Registration. 

It is also compulsory for all firms to register themselves with the Income Tax Department and receive a PAN Card for official purposes. After the PAN Card is issued, the firm can open a current account in any bank and handle all financial transactions through it. 

Benefits Of Registering a Partnership Firm in India

Here are the benefits of a partnership deed in India

1. Partners of a registered firm are free to file a case against a 3rd party in dispute cases. For example - If the 3rd party claimed goods but is refusing to make payment. However, unregistered firms do not hold that right. 3rd parties can file the case against business partners regardless of the registration status of the firm.
2. If there is an internal conflict between the partners, a registered firm has the freedom to approach the court of law to let them handle the dispute. This could include situations like one partner cheating the other one out of profit or making sole decisions. 
3. Registered firms have the power to claim set-off. If a 3rd party claims that the firm owes them some money, the firm is allowed to state if the 3rd party also owes them some money in return. 
4. Registered firms carry higher credibility than unregistered firms. 

Types of Partnership 

Even though the definition of a partnership deed remains the same, it can be written for three types of partnership. 

1. General Partnership - Governed under The Partnership Act, 1932, the general partnership involves two or more partners who carry equal responsibilities and rights with unlimited liability. 

2. Limited partnership - Also governed under The Partnership Act, 1932, limited partnership means that one partner has unlimited liability while the other has limited liability. Partner with limited liability cannot partake in the firm's day-to-day decisions and has limited control access. 

3. Limited Liability partnership - Governed according to The Liability Act, 2008, LLP means that each partner holds limited liability that is decided according to the extent of their investment in the firm.

What Happens in the Absence of a Partnership Deed?

If the business partners fail to sign a partnership deed, it means that - 

• Partners are liable to share the profits and losses regardless of the conditions equally.
• Partners do not get a fixed salary at regular intervals.
• Interest earned on the invested capital is not payable.
• In case of mutual consent, partners will get 6% per annum interest on the loans to the firm.
• Drawings made by any partner will not be charged with interest.

Partnership Deed Format

After proprietorship, the partnership is the 2nd most preferred way to run a business. People with different talents and capabilities come together and try to form a business organization that can benefit all partners in the long run. Even though there are numerous benefits of starting a business in partnership with someone, the risk of internal conflict always remains. People often find that they are wary of investing all their savings, time, and effort into a business venture that their partner at any time can exploit. To ensure that such situations do not arise, a partnership deed is signed by all partners along with official authority. A partnership deed, also meaning partnership agreement, is an official document formed to preserve the rights and interests of all partners involved in the business firm. Now that you are one step closer to starting your business, it is time to find the best space!

Get a free consultation from NoBroker's legal experts

Taking the time to consider these key elements will help ensure the success of your partnership and minimize the risk of conflict. A well-written partnership deed is essential to the success of any business partnership. And, when you're ready to take the next step and secure funding for your partnership, consider a home loan from NoBroker. Our experts can guide you through the process and help you get the funding you need to grow your business.

At NoBroker, we understand the importance of a solid partnership deed. That's why we offer free legal consultations to help you craft the perfect partnership deed for your business. Don't let a lack of knowledge hold you back from making your partnership a sweet success. Reach out to us today!

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